When should you look to downsize your property?

The downsizing of property assets is a question which millions of people around the world ask themselves on a regular basis. It is all good and well having a property which is valuable and growing in value but for many people there comes a time when the property is just too expensive to run or too much from a physical point of view. So, when should you look to downsize your property and what are the benefits?

Cost and taxes

There are various costs and taxes associated with running a relatively large property and while these can seem minimal when in employment, once in retirement they can begin to eat into your savings. This is one factor which many people seem to wrestle with, unable to give up a property which they may have held for many years but one which is in reality reducing their savings and long-term financial strength.

It is also worth noting that in countries such as the UK there is a growing political movement to increase the ongoing tax on properties at the higher end of the value spectrum. This is having an impact on many retired couples who may have held their property for many years and are now being unfairly targeted by increased taxes. In many ways the ever increasing taxes associated with higher value properties is becoming one of the main reasons why people are looking to downsize.

When you have children a relatively large property can seem relatively small with little space for privacy. However, this situation can change dramatically when your children fly the nest leaving you with more space, more areas to heat and in many cases a growing expense. Your children may visit on a regular basis, you may have grandchildren and this may offer the opportunity to invite friends around, but the chances are your property is not being used to its full capacity.

The idea of having a “family home” is something which appeals to many of us and is often the one sticking point when looking to downsize. The truth is that releasing capital to enjoy your later years and downsizing to reduce the physical demands of running a larger home can have a dramatic impact upon your standard of living.

Inheritance tax

Many of us tend to bury our heads in the sand when it comes to inheritance tax leaving this for another day. However, inheritance tax planning should start at a relatively early age because you are able to give away tax-free amounts to friends and family while still alive – thereby taking some of your assets out of the reach of inheritance tax in the future.

It is also worth noting that the inheritance tax allowance has historically risen significantly slower than the cost of property in the UK. This means that year-on-year more and more property is being dragged under the umbrella of inheritance tax. This can have a massive detrimental impact upon the assets that you leave behind for your family.

Conclusion

We have only just touched on the array of issues you need to take into account when looking at downsizing your property. Each individual situation is different, we all have our own ideas and aspirations for the future and downsizing may well never be an issue. However, if you have considered or you are actively considering downsizing your property then you need to look in great detail and consider the long-term benefits. In many cases there are many more long-term benefits than we would care to admit!